Why Innovation Fails: The Past Vs. Future Problem

Sustainable innovation efforts call for integrating two competing ways of thinking about a business.

Having worked with business leaders for years in the pursuit of innovation, I have come to realize that there is a fundamental reason for failure. Companies have two modes of operation that often are viewed as incompatible. One mode focuses on the past and one focuses on the future, and the inability to integrate the two explains why companies find it so hard to innovate.

Established businesses are great at maintaining value through greater efficiency and effectiveness, but over time these businesses become irrelevant. Start-ups are great at spotting unmet needs and driving a relentless charge -- only to find that they have an unsustainable business model.

Innovative companies like Apple find a way to do both, keeping an eye on the bottom line while sensing the hearts of their customers.

Is there a way for your firm to innovate on a constant basis? Yes, and it involves integrating your past and future.

Your company most likely operates in "reliability mode" most of the time. Decisions are made by looking backward into the operations of the company and finding elements that lower costs or drive more revenue from existing operations. When a big enough element is found, projects get funded. You know this mode dominates when you are asked to "prove it" before receiving funding.

Start-up companies operate in "eventuality mode." It is the act of looking forward into the changing marketplace and finding the elements that will change what customers want from a company. When a big enough element (insight) is found, the entire organization is directed to meet the trend with enough momentum to catch it. You know this mode dominates your company when you are asked to commit to a vision.

When a company can integrate the two modes, and not rely too heavily on either of them, innovation succeeds. Here's an example. One of our clients, a large health insurance provider, was unable to get approval to fund a customer-centric redesign of its member website. The reliability metrics (e.g., number of members using the site, call center inquiry reduction) couldn't prove that a $10 million investment would pay off. Then healthcare reform created a well-defined "eventuality"; more people would be entering the market for health insurance and using digital channels to manage their claims. Once it became clear that the company's core competency of managing member claims was at risk, the funds were allocated.

Your company might not be lucky enough to have a government-mandated eventuality looming over the horizon. As a leader you have to put the time and effort in to provide a level of certainty about future events that can balance the natural focus on the reliable past. So before you claim that symptoms such as risk aversion, lack of ideas and data paralysis are the problem, evaluate how effectively you integrate concepts of eventuality into your business decisions.

The focus on individual company dynamics is important. We talk historically about disruption in terms of these kind of macro forces or once-in-a-lifetime strategic decisions, but we take actions every day that open or close the door to disruptive ideas.

The Innovator's Dilemma absolutely describes the circumstances or context in which these two modes create market adversaries. It however did not dig deep enough into the mechanisms inside of an individual company that empowers leaders to mindfully manage that dynamic.

Disk drives are a great example of an industry that made up a mechanism to track eventualities (e.g., capacity, read/write speed, reliability) but failed to understand the eventualities of the consumer need. As I recall the example (it has been awhile since I read it) the innovation was to offer less rich feature sets to a segment that was under served. Eventually that technical direction yielded the next step change in the market leaving the incumbent playing catch-up. If the Eventuality efforts of a company gets to focused on their own metrics the outcome can be a false sense of security.

@ubm_techweb_disqus_sso_-6529726ec55620e74fd30f58de0eb907:disqus - I agree that there is a great amount of diversity when it comes to the actual practice of product development/budget approval processes. My experience has been that companies over time swing from a rigorous methodology to a gut/bandwagon approach then back again. This at a higher level represents an organic (yet less then optimal) attempt at integrating Reliability mode and Eventuality mode.

It's the "innovator's dilemma" that was identified by Clay Christensen: keeping your current market happy with incremental innovations while trying to tap a new market with breakthrough/disruptive innovations. Remember that the industry he first found this in was disk drive manufacturing.

Healthcare data is nothing new, but yet, why do healthcare improvements from quantifiable data seem almost rare today? Healthcare administrators have a wealth of data accessible to them but aren't sure how much of that data is usable or even correct.